Executive Summary: Key Legal and Evidentiary Issues

• Defendants sought to prevent Plaintiff from enforcing mortgage rights through a power of sale.

• Allegation that Plaintiff misrepresented the potential for residential development due to known restrictive easements.

• Easements explicitly barred residential use until 2041, yet Plaintiff entered post-closing agreement suggesting issue was unresolved.

• Court acknowledged a serious issue to be tried, particularly concerning alleged misrepresentation.

• Injunction denied due to lack of demonstrated irreparable harm—losses were quantifiable and compensable.

• Defendants' undertaking as to damages found hollow, undermining entitlement to injunctive relief.

Facts of the Case

In 2607087 Ontario Limited v. 2654993 Ontario Ltd., the Ontario Superior Court dealt with a dispute arising from the 2018 sale of four parcels of land in Oro-Medonte, Ontario—formerly operated as a golf course and known as the "Golf Course Lands." The Defendants, real estate entities controlled by Zhiyuan (Charles) Xiao, purchased the land for $11 million, with half paid upfront and the balance secured through vendor take-back mortgages issued by the Plaintiff.

Although the Defendants were aware of a registered easement and restrictive covenant on the land in favour of a neighbouring property (the "Development Lands"), they nonetheless entered a post-closing agreement with the Plaintiff. This agreement committed the Plaintiff to using "best efforts" to resolve title issues within 90 days. Failing that, the Defendants could attempt to rectify the issue themselves, with costs set off against the mortgage principal.

However, prior to entering this agreement, the Plaintiff had already been advised—via counsel for the Development Lands on October 16, 2018—that the easement would not be released at that time or in the foreseeable future. This non-disclosure formed the basis of the Defendants’ allegation of fraudulent misrepresentation.

In 2022, Justice Penny, in a separate proceeding (Romspen Investment Corp. v. Horseshoe Valley Lands Ltd., 2022 ONSC 4352), confirmed that the easement prohibits residential development until November 15, 2041. This rendered the Defendants’ development plans legally impossible.

The Defendants later defaulted on the mortgages, ceasing payments as of December 21, 2022. The Plaintiff commenced enforcement proceedings. In response, the Defendants filed a counterclaim for misrepresentation and sought an injunction to restrain the Plaintiff from proceeding with the sale under its power of sale rights.

Decision and Legal Analysis

Justice S.E. Fraser heard the motion for injunctive relief and applied the three-part test from RJR-MacDonald Inc. v. Canada, [1994] 1 S.C.R. 311:

1. Serious Issue to Be Tried
   The court found that the allegation of misrepresentation regarding the easements met the low threshold of a serious issue. Although some of the requested relief (such as delisting the property and disclosing sale agreements) amounted to a mandatory injunction, the court treated the primary request—restraining the sale—as a prohibitive injunction, applying the serious issue standard rather than requiring a strong prima facie case.

2. Irreparable Harm
   The motion failed here. Justice Fraser held that any loss arising from a premature sale of the property was quantifiable and compensable by damages. The Defendants argued that the property value was less than the money invested and that the Plaintiff had no legitimate interest in selling it due to their set-off claim. Nonetheless, these were not found to constitute irreparable harm.

3. Balance of Convenience
   Since irreparable harm was not established, this prong was not analyzed in depth. However, the Plaintiff’s claim of financial strain caused by non-payment was considered credible, and the court noted it would be unjust for the Defendants to rely on harm they themselves caused.

4. Undertaking as to Damages (Rule 40.03)
   The Defendants’ undertaking was found to be inadequate and hollow, given their default on the mortgages and inability to satisfy any damages awarded to the Plaintiff. This further undermined their case for equitable relief.

Conclusion

Justice Fraser dismissed the motion for an interlocutory injunction, affirming the Plaintiff’s right to proceed with enforcing its mortgage security. Costs were reserved, with submissions to follow if the parties cannot agree.

The ruling reinforces key principles in mortgage enforcement cases—especially the high bar required to restrain a mortgagee from exercising contractual remedies—and clarifies that allegations of misrepresentation, while sufficient to justify a trial, do not automatically entitle a party to equitable interim relief.

No specific monetary amount has been awarded as of this decision. The Plaintiff’s entitlement to costs is presumptive but pending quantification.